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Are we through the worst of the crisis?
While it’s too early to say the economic recovery is under way, it’s possible we have seen the worst readings in terms of industrial confidence in Europe and Asia.
This week analytics and information firm IHS Markit published its widely-followed industrial purchasing managers index (PMI) surveys for China, Japan, the UK and several European companies, as well as the composite index for the Eurozone.
The reading for China, which entered the coronavirus crisis first and after locking down its economy almost overnight has been able to re-start activity faster than most, showed the quickest rate of recovery in manufacturing for nine years.
After a record fall to 40 in February, the manufacturing PMI rose to 50.7 in May, signalling that the sector is once again expanding (a reading above 50 means expansion, below 50 means contraction).
The UK PMI survey registered a rebound from April’s record low of 32.6 to 40.7, still below the key 50 level and the seventh lowest level in the survey’s history, but as IHS Markit Director Ron Dobson observed, ‘the rate of contraction has eased considerably since April, meaning the worst of the production downturn may be behind us’.
Surveys in France and Germany showed a similar recovery, from 31.5 and 34.5 in April to 40.6 and 36.8 respectively, although in France demand continued to decline in May while in Germany employment levels fell further, impacting the overall reading.
Japan was the only major economy to see a continued decline, with May’s reading of 38.4 the lowest since the end of the global financial crisis in March 2009. Meanwhile the preliminary US reading for May was 39.8 against 36.1 in April, although with concerns resurfacing over a trade war with China the reading could struggle in coming months.
AN UPHILL BATTLE
As far as the UK goes, while there is scope for optimism we need to be realistic. Output, new orders and employment fall at some of the fastest rates in the survey’s 28 year history. New orders and export orders for consumer, intermediate and investment goods were particularly weak.
Some companies expect output to rise over the next 12 months, and some have seen new orders since clients started to reopen their businesses, but it is patchy. Also inflation is rising due to supply chain disruptions, although part of this was passed on.
Finally the threat of a ‘no deal’ Brexit can’t be dismissed. We may have seen the worst of the indicators for the time being, but it could be a very long, drawn-out recovery.